Asia's exploding middle class presents perfect opportunity for Japan
There is one critical statistic about Asia that every Japanese should know. Today, in all of Asia, from West Asia to East Asia, the population of the middle class totals about 500 million. By 2020, which is only six years from now, this will be 1.75 billion. This is a 3.5-fold increase, and growth of a level the world has never seen before.
This has profound implications for the future of Japan. For 150 years, Japan has worked with dynamic Western middle class populations and passive Asian populations. Japan will now have to live with the reverse situation.
Return to precedent
Why is the Asian middle class exploding in size? In many ways, this should not be surprising. It is a return of Asian prosperity and a perfectly natural development. From the year 1A.D. to 1820, the world's two largest economies were Asian: China and India. Only in the past 200 years has Europe taken off, and then America. When the past two centuries are viewed inside the context of the past two millennia, Western domination has basically been a historical aberration -- and historical aberrations by nature do not last. Hence, the return of Asian prosperity and its middle class.
The timing of this return, however, is not natural. It is the result of several accidental factors. One was Japan becoming the first Asian country to modernize. I often say that Asia should send Japan a big thank you note for this. Japan's successful modernization inspired other Asian countries to follow suit. If Japan had not successfully modernized, much of Asia could look like much of Africa, the Arab world and Latin America -- lacking a single country that has broken through into the ranks of developed societies.
Jawaharlal Nehru, the first prime minister of an independent India, once famously said that it was the Japanese victory over Russia in 1905 that made him believe that Asian societies could be liberated from European colonial domination. Sadly, few Japanese are aware of how much Japan has done to inspire the Asian imagination.
Half the world
Asian countries are also succeeding in development because they have followed Japan in understanding, absorbing and implementing what I call the seven pillars of Western wisdom.
These seven pillars are described at length in my book, "The New Asian Hemisphere: The Irresistible Shift of Global Power to the East," which has been translated into Japanese. In my latest book, "The Great Convergence: Asia, the West, and the Logic of One World," I have further developed these concepts by pointing out that the reason the world overall is becoming a better place is that nearly all of the world's societies, with the exception of a few such as North Korea, are converging, so to speak, on a consensual cluster of norms: modern science, logic, free market economics, the social contract and multilateralism.
The global convergence on these norms is causing this explosion of the Asian middle class, and in much of the rest of the world. The global middle class population is today about 1.8 billion. By 2020, it is expected to reach 3.2 billion, and 4.9 billion by 2030. This means that in less than 20 years, more than half of the world's population will enjoy middle class living standards. It is going to change the course of world history.
It will also bring many opportunities to Japan's doorstep. The Asian middle class jump from 500 million to 1.75 billion by 2020 could potentially add 1.25 billion new consumers for Japanese products. However, it is up to Japanese companies to learn how to reach these markets.
In many cases, Japanese companies have been falling behind their overseas competitors.
"In the past, Japanese companies did not understand the Indian market and its price sensitivity as Koreans did," said Bharat Bhushan, a senior academic consultant to the Indian Council of Social Science Research. "Now they're making a special effort in not only focusing on high technology, but adapting themselves to the reality of the market."
The Indian consumer, however, may not behave in the same way as other Asian consumers. Kaushik Mitter, managing editor of the Asian Age newspaper, has noted: "Indian market conditions sometimes vary widely from those of other Asian economies… Purchasing power of Indian consumers is much lower than in Southeast Asia. The same products that may be hugely successful in Malaysia and Indonesia may have to be tweaked quite a bit to be successful in the Indian market."
There are sound strategic reasons why Japanese companies should pay attention to the Indian market. Unlike the Chinese market, which has been affected by the political vicissitudes in Sino-Japanese relations, the Indian market is not subject to this kind of political turbulence. Indeed, the opposite is true. There are sound geopolitical reasons for Japan and India to cooperate together.
India ready to rise
Despite the current slowdown in India's economic growth from an average rate of 8-9% to the current rate of 4-5%, India will very likely bounce back once political uncertainties are resolved. Anyone who doubts the long-term future of India's economic performance should look at the performance of the ethnic Indian population in the United States. In one of the most competitive societies in the world, Indians have emerged as having the highest per capita incomes of all ethnic groups. Indian Americans' per capita income is $37,931 compared with the U.S. average of $26,708. If the Indian population could achieve even half the per capita income of Indians in America, India's GDP would amount to $25 trillion instead of its current $2 trillion.
It would be wise for Japanese companies to pay equal attention to the markets in India and the Association of Southeast Asian Nations. Japan's engagement with Asean markets has been long-standing and many Japanese companies understand Asean markets well. But little attention has been paid to India.
To capitalize on new markets, Japanese companies also need to work with the Japanese government. In many countries, Japanese government assistance has gained valuable political goodwill. For example, since 2002, Japan has extended $21 billion in aid to India for infrastructure. This has resulted in the Delhi metro system and the Delhi-Mumbai Industrial Corridor project. Such projects also create opportunities for Japanese companies to invest in infrastructure development.
My parting piece of advice to Japan might seem contradictory. If Japan is to successfully engage the emerging new middle class in places like India and the Asean countries, it is vital that Japan be seen not only as an economic animal but also as a deep and rich cultural powerhouse. It should focus equally importantly on cultural re-engagement with Asian societies, with whom Japan has enjoyed even longer and closer links than with Western societies.
It was wise of Japan to support the Nalanda project that Indian Prime Minister Manmohan Singh launched at the East Asia Summit in 2009. From the 5th century to the 12th century, Nalanda was the world's leading center for higher learning. Scholars from China, Korea and Japan went there to study. By strongly supporting such symbolic projects, Japan demonstrates that it is now serious in its declared desire to re-engage Asia.
Kishore Mahbubani is dean of the Lee Kuan Yew School of Public Policy, the National University of Singapore.